In a transaction for the purchase of goods and/or services, the purchaser typically has the ability to pay for the items using any one of many different payment methods. For instance, consider the familiar situation where a purchaser in a department store wishes to buy an article of clothing. The purchaser can pay for the clothing article with cash or by check. Alternatively, the purchaser might wish to use a credit card or a debit card. Indeed, it is not uncommon for the purchaser to carry many payment options in the form of cash, a checkbook, a bank debit card, as well as many different kinds of credit cards, including cards issued by the merchants themselves (e.g., a Sears.RTM. charge card or a Nordstroms.RTM. charge card), bank issued credit cards (e.g., a SeaFirst Bank VISA.RTM. credit card or a Bank of America MasterCard.RTM. credit card), an organization-related credit card (e.g., United Airlines Mileage Plus First Card.TM. or an IEEE credit card), and association credit cards (e.g., Discover.RTM. and American Express.RTM.).
The department store, on the other hand, might only accept a few of these forms of payment, such as cash, local checks, its own charge card, and American Express.RTM., while not accepting other forms of payment. The department store often posts these accepted forms of payment at the point-of-purchase counter.
During the purchase transaction of the clothing article, the purchaser mentally takes note of the forms of payment accepted by the department store. The purchaser then tenders payment using a suitable payment method. If the purchaser chooses to pay with a personal check, the sales clerk performs an authentication process. The clerk only accepts the check if it is local, if the clerk recognizes the person writing the check, or if the person presents another piece of identification (e.g., a credit card or driver's license) to verify the authenticity of that person who is offering the check.
In the event the purchaser tenders a credit card to pay for the clothing article, the sales clerk performs a check to verify that the purchaser has sufficient funds in the credit card account and has not exceeded the spending limit imposed by the issuing institution. This is typically done by passing the purchaser's credit card through a magnetic-stripe card reader, such as a Verifone.RTM. system, that is located at the point-of-purchase counter to electronically read the purchaser's account information contained in the magnetic stripe on the credit card. The purchaser's account information is validated on-line with the card issuer with respect to the purchaser's account balance and spending limit. Assuming that the verification process returns a normal status, the sales clerk accepts the tendered credit card and consummates the purchase.
The complexity of a purchase transaction increases when moved from the point-of-purchase context, where the purchaser and merchant are face-to-face, to a remote purchase context, where the merchant and purchaser are separated from one another. For example, consider another familiar transaction where a purchaser wants to buy a new lamp from a mail order catalog. The purchaser places an order for the lamp over the telephone or through the mail. The purchaser might use a credit card, enclose a check, or simply wait to be billed at the end of the month. The merchant takes an assumed risk that the ordering consumer is legitimate and that payment will be forthcoming, and based upon that assumption, ships the new lamp to the purchaser.
In these transactions, the merchant accepts a fairly high risk of not being paid (compared to other types of sales transactions) because the purchaser does not present a credit card or sign a credit card receipt. The purchaser can deny that the transaction ever occurred, leaving the merchant with the burden of proving that a transaction took place. To meet this burden, the merchant typically tries to show that the purchaser signed for receipt of the product.
In recent years, there has been a dramatic growth in the number of consumers that order goods and/or services, and then pay for them, using electronic devices. For instance, it is fairly common for a purchaser to watch a home shopping television program, choose a product, and order the product over the telephone. The product is shipped and the purchaser is billed at a later time. As another example, the viewer may purchase a special movie or event that is scheduled to be shown at a particular time, like that of the Pay-Per-View.RTM. arrangement. In this situation, the viewer orders the special program from the cable company over the telephone, typically using an automated menu, and the program is electronically sent to the viewer's own television set. The viewer is then billed at the end of the month as part of the cable bill. For another example, a computer user might wish to purchase a service from an on-line service provider whereby the user simply orders and receives the desired service electronically over a network communication system, such as Internet. Common on-line service providers include CompuServe.RTM., Dialog.RTM., and America On-Line.RTM..
In addition to purchasing items using electronic devices, people are beginning to automate their payment of such items. After a good or service is received and a bill is presented, many purchasers are starting to pay their bills electronically, or through a check writing system such as the Checkfree.RTM. system. In these computerized payment systems, the consumer instructs the service provider by telephone, computer terminal, or other telecommunications to pay various bills (especially recurring, monthly bills) without the consumer having to write a check for each bill. U.S. Pat. No. 5,383,113 describes an example computerized check writing system.
With the increasing demand to electronically purchase and pay for goods and/or services, there are a number of issues that arise. For instance, the purchaser must choose a method of paying for the goods and/or services that is acceptable to the merchant. But this task is not so simple, because the purchaser most likely will not have access to payment methods that are accepted by the merchant. Unlike a point-of-purchase transaction where the accepted payment methods are often posted, the purchaser in the electronic transaction is often blind to the requirements of the merchant.
Another issues concerns how to protect the purchaser's wallet from the merchant. Given a choice, the merchant would most likely choose one particular payment method (such as using the merchant's own charge card) that the purchaser might not wish to use. Moreover, for obvious reasons, it is in the purchaser's interest not to reveal his/her bank account or credit card information to the merchant. An electronic purchasing system should block the merchant from access to the purchaser's payment options and to this confidential account information.
Another concern is protection from fraudulent transactions, both on the part of the merchant and the purchaser. For instance, how can the purchaser be sure that the merchant is authentic and truly has the represented goods or services to sell? How can the purchaser know that he/she will not be billed for more than the amount that was agreed upon? From the merchant side, how can the merchant be assured that the purchaser really exists and that payment will be forthcoming? These issues are less troublesome in a point-of-purchase context because the purchaser and merchant can see one another, the goods are often readily apparent, and payment is typically tendered on the spot. However, in an electronic purchasing system where the purchaser might live in one state or country and the seller might live in another, these issues become rather important. A suitable purchasing system should address these issues to reduce or prevent the occurrence of fraudulent transactions.
Another issue that arises in the electronic environment is whether the purchaser has sufficient funds to pay for the goods or services. Still another issue concerns how to authenticate the purchaser and merchant, as there is no opportunity for either of them to visually authenticate one another like in the point-of-purchase context.
Many of the issues raised above are born out of the difficulty and complexity of converting from a "paper-trail" purchase transaction system--where these concerns are addressed in large part through the use of paper checks, receipts, physical credit cards, debit cards, and penned signature verification--to a "paperless" computerized purchase transaction system. It is an object of this invention to provide a "paperless" electronic purchasing system which solves these above noted problems.